Presented by: 2015 Zeffert & Associates All Rights Reserved

Presented by: 2015 Zeffert & Associates All Rights Reserved

The Goal of this Training The purpose of this training is to provide information for all interested personnel to successfully maintain compliance at affordable housing properties and to avoid top eligibility errors. Zeffert & Associates www.zeffert.com

Top Error: Insufficient Application/Questionnaire Issues Top Error # 1: Insufficient Child Support/Alimony Questions LIHTC/HUD: 4350.3 5-6 F / 5-12 Exhibit 5-1 / 2 RD: HB-2-3560 Exhibit 6-3 page 6-17 Owners must count alimony or child support amounts awarded by the court unless the applicant certifies that payments are not being made and that he or she has taken all reasonable legal actions to collect amounts due, including filing with the appropriate courts or agencies responsible for enforcing payment. Note: Amounts actually received must be counted, whether court-ordered or not. All the same questions should be asked for alimony as are asked for child support. Support Payments Sample Application Questions: Alimony/Child Support Zeffert & Associates www.zeffert.com Page 1

Top Error # 2: Insufficient Student Questions LIHTC/HUD: 8823 Guide 4-19 & 20 RD: HB-2-3560 6.5 A on page 6-4 Student Financial Assistance LIHTC 8823 Guide 4-19 & 20 HUD 4350.3 5-6 E / 5-11 & Exhibit 5-1 Inclusions (9) & Exclusions (6) RD: HB-2-3560 6.5 A on page 6-4 Unnumbered Letters of 1-11-07 and 11-30-11 Tuition Assistance (for those receiving Section 8 assistance) Usually, all student financial assistance is excluded from income. However, we must count student financial assistance received by adult students (full or part time) who are receiving Section 8 assistance who attend institutes of higher learning EXCEPT: Adult students who are over 23 who have a dependent child Adults who are dependents of the household Financial Assistance includes: 1. Pell Grants and other programs funded by the Higher Education Act of 1965 2. Assistance from private sources (example - parents, grandparents) 3. Assistance from an institute of higher learning (example - scholarships) Note: Financial Assistance Does NOT include loans What we count as income: Amounts in excess of tuition (as defined by the school) What we need to determine: Is the household receiving Section 8 Assistance? (if no - stop) Are any adults enrolled in an institute of higher learning? (if no stop) Do the individual adults meet an exception? (If yes stop) Student Eligibility It is important to keep student eligibility rules straight. Although the full topic of student eligibility is beyond the scope of this discussion, the chart below demonstrates just some of the complexity involved and how the rules are different. LIHTC/Bond Sec. 8/RD/HOME ALL MEMBERS being students triggers the rule Students of ALL AGES are examined ANY MEMBER who is a student triggers the rule ADULT students UNDER AGE 24 are examined Students at INSTITUTES OF LEARNING are examined FULL-TIME STUDENTS trigger the rule Students at INSTITUTES OF HIGHER LEARNING are examined FULL- or PART-TIME STUDENTS trigger the rule Zeffert & Associates www.zeffert.com Page 2

Sample Application Questions: Students Student Aid Zeffert & Associates www.zeffert.com Page 3

Top Error: Household Size Avoiding Top Error # 3: Not Counting Temporarily Absent Members RD HB-2-3560 6.9.A.3 page 6-8 LIHTC/HUD 4350.3 5-6 A & B / 5-7 to 10 Temporarily Absent Members We must always count: Dependent students away at school, also military household members assigned out of town, but who have a spouse or child(ren) in the unit. 8823 Guide 4-11 HUD 4350.3 Change 3 urged some leniency when it comes to those absent in the military. For example, an owner might conclude that a military member and their children are not household members when grandparents are temporarily caring for their grandchildren while the parent is on active duty, even though the military member s dependents are in the unit. Also an owner might choose not to count the income of a guardian that is temporarily in the unit to care for children of a person on active duty. Household Size Zeffert & Associates www.zeffert.com Page 4

Top Error: Avoiding Top Error # 4: Assumptions For Full-Time Employment: multiply hourly wages by (40 hrs/wk) 2,080 weekly wages by 52 bi-weekly wages by 26 semi-monthly wages by 24 monthly wages by 12 annual salary by 1 Bad Assumption Example # 1: There are 4 weeks in a month. Verification tells us that Connie is paid $750 weekly. The income limit for his family size is $36,500 Income Calculation Issues Bad Math LIHTC/HUD & RD: 4350.3 5-5 B / 5-4 Weekly Payments Incorrect method: $750 X X = Correct method: $750 X = If the first method is used and the household is moved in, the household will be! Bad Assumption Example # 2 Bi-weekly pay comes twice a month. Verification tells us that Jill is paid $1089 bi-weekly. The income limit for his family size is $28,130 Bi-Weekly Payments Incorrect method: $1,089 X X = Correct method: $1,089 X = If the first method is used and the household is moved in, the household will be! Can you spot any errors? Example of changing hourly wage: Certification date, February 1 Employer anticipates: Pay period: weekly 40 regular hours/week 3 OT hours/week OT is at 1-½ time Current hourly rate $9.50/hour Anticipated raise starting March 15 $0.50/hour Manager calculation sheet: February 1 to March 14 (6 weeks) 6 weeks x 40 hours x $9.50 = $ 2,280.00 6 weeks x 3 hours x $14.25 = $ 256.50 47 weeks x 40 hours x $10.00 = $18,800.00 47 weeks x 3 hours x $14.25 = $ 2,009.25 Raises Zeffert & Associates www.zeffert.com Page 5

Annual Income = $20,809.25 Common Error # 5: Form 1040 with Schedule (s): C: Business, E: Rental, or F: Farm Financial Statement (s) of the business Signed statement by business owner Self-Employment Errors LIHTC/HUD: 4350.3 Appendix 3 RD: HB-2-3560 Attachment 6-A (b)(2) How to verify self-employment 4350.3 Appendix 3 Things to watch for on a schedule C: Make sure that the last year s tax return represents a full year s income; otherwise you will need to annualize (Line item H) Make sure to include any wages or contract labor listed on the schedule C that owner paid to him or herself or any other household member! (Line item 11 and 26) Make sure that if depreciation is listed, clarification is obtained to demonstrate what method of depreciation was used. If the straight-line depreciation method was not used, the applicant/tenant must provide an accountant s calculation of depreciation using the straight-line method. The net income should then be determined using the expense based on the straight-line method. (Line item 13) If net business income is negative, income is zero. It does not offset other household income. Self- Employment Zeffert & Associates www.zeffert.com Page 6

Top Error # 6: Social Security Calculation Errors LIHTC/HUD: 4350.3 5-6 I & J / 5-11 & 12 Exhibit 5-1 / 1 RD: HB-2-3560 Attachment 6-A (b) (4) and (c) (13) The full amount of periodic amounts received from social security, annuities, insurance policies, retirement funds, pensions, disability or death benefits, and other similar types of periodic receipts. Count amounts BEFORE Medicare is taken out. Delayed SS and SSI payments are not counted as income (also applies to VA payments). Count amounts AFTER adjustments for past overpayments (also applies to TANF and unemployment). Example: Gross amount $450. Actual payment is $397 because of past overpayment. Count $397. Watch for Cost Of Living Adjustment (COLA) each year. The COLA is usually announced in October. Examples: 5.8% in 2009 and NONE in 2010 or 2011, 3.6% in 2012, 1.7% in 2013 and 1.5% in 2014 Social Security Zeffert & Associates www.zeffert.com Page 7

Top Error # 7: Incorrect Income Counted for Dependents LIHTC/HUD: 4350.3 Fig 5-2 / 5-7 RD: HB-2-3560 Attach 6-A Whose Income is Counted? 4350.3 Figure 5-2 / 5-8 Unearned and Members Earned Income Asset Income Head, Spouse and Co-Head YES YES Other Adult YES YES Foster Adult YES YES Dependents: - Child under 18 NO YES - Foster Child NO YES -Full-time Student 18 & Over YES up to $480 YES (Not head, co-head, or spouse) Temporarily absent Member YES YES Permanently living in a hospital or nursing home A Household Decision Non-Members Live-in Attendant NO NO Guest NO NO Change 3 UPDATE: CHG 4 4350.3 3-6.E.3/3-8 Foster Children and adults are now counted as household members. They are included when determining household size for income limits as well as unit size. Dependent Income Zeffert & Associates www.zeffert.com Page 8

Avoiding Top Error # 8: Not counting non-cash contributions LIHTC/HUD/RD 4350.3 Exhibit 5-1 / 2 Periodic and determinable allowances, such regular contributions or gifts received from organizations or from persons not residing in the dwelling Periodic Allowances - Gifts 4350.3 5-6 G / 5-10 & 11 Exhibit 5-1 / 2 Cash and Non-cash contributions to the household are income to the family. 2 Allowed exclusions: 1. Groceries given to the household (NOT money to buy groceries) 2. Child care paid directly to care provider in behalf of the household All other contributions are counted Cash & Non- Cash Contributions Zeffert & Associates www.zeffert.com Page 9

Top Error: Asset Calculation Issues Top Error # 9: An asset has Market and Cash value: Calculating Asset Income on Cash Value LIHTC/HUD: 4350.3 5-7 A-C / 5-21 &22 RD: HB-2-3560 6.10.B page 6-13 4350.3 5-7 A 1 / 5-21 4350.3 5-7 Example/ 5-24 Items of value that may be turned into cash The market value is the amount another person would pay to acquire the asset. o NOTE: Actual income is based on market value. The cash value is simply its dollar value on the open market. NOTE: 3 rd -parties will not always complete our verification forms. In those cases, we often have to rely on statements or other documentation supplied by the tenants. We need to be sure that the documents provided give us at least the information above. Asset Income Avoiding Top Error # 10: Counting Payments from Reverse Mortgages Zeffert & Associates www.zeffert.com Page 10

A Reverse Mortgage is Investopedia.com A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage (principal or interest) is required until the borrower dies or the home is sold. The transaction is structured so that the loan amount will not exceed the value of the home over the life of the loan. Per the above, reverse mortgages are treated the same as other mortgages. They are loans against the property, and decrease the property s cash value. Reverse Mortgages Q - Are the payments that the homeowner receives income? A - Payments received by the homeowner are NOT income, but rather the proceeds of loans against the property Q - Is the home an asset to the homeowner? A - The home continues to be an asset and belongs to the homeowner Avoiding Top Error # 11: Periodic Payment Errors HUD/LIHTC/RD 4350.3 5-6 P / 5-19 Withdrawals from Investments The withdrawal of cash or assets from an investment received as periodic payments should be counted as income If benefits are received through periodic payments, do not count any remaining amounts in the account as an asset. States Differ on periodic payments from assets UPDATE: CHG 4 4350.3 5-6 P/5-19 & 5-7G 4 b & d/5-36 & 37 HUD has clarified a cross reference that created some confusion. The original cross reference seemed to apply 5-6 P to annuities only. Now it applies more generally to retirement account (as discussed in 5-7, in total). Additional references in 5-7 G 4 further clarify that paragraph 5-6 P applies to retirement accounts, including 401(k)s, IRAs and KEOGHs. Periodic Payments Zeffert & Associates www.zeffert.com Page 11

Income Calculation Issues Common Error # 12: Incorrectly counting Income From Disposed Assets Zeffert & Associates www.zeffert.com Page 12

Imputing Income on Disposed Assets 4350.3 5-7 G 8 / 5-36 to 38 A special rule applies to assets disposed of for less than fair market value in the last 2 years. If the market value of the asset was $1,000 more than the amount received. Disposed asset value = cash value less amount received. Do not count assets lost in foreclosure, bankruptcy, divorce or separation settlements. Although not a new thought, Change 3 reminds us that, when the 2-year disposed of asset threshold ends, imputed income ends as well. At a HUD property, the owner has the choice of annualizing the income, and conducting an interim or only counting the imputed income for the months up until the 2-year limit. LIHTC properties do not have interim option, so the later choice applies to LIHTC certifications. Zeffert & Associates www.zeffert.com Page 13

A Few Words of Encouragement We Do this Job Well Recent government reviews of the various programs have been good or show improvement. It is a challenge to learn these programs well, but the more effort something takes, the more gain is realized. These programs are active in all states, and qualified personnel are in demand. Not all jobs provide a certain amount of personal security and are also beneficial to our communities. We strongly feel that affordable housing-related jobs are. Zeffert & Associates www.zeffert.com Page 14

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Ask About Online Training! Logon Now! L I V E! Interesting specific topics! SAFE, ACCESSIBLE, AND AFFORDABLE HOUSING IS A CRITICAL COMPONENT IN GROWING HEALTHY COMMUNITIES Trust Us To Handle Your Compliance Needs With Quality & Reliable Service PROVIDERS OF THE FOLLOWING SERVICES Asset Management Training File Reviews Utility Allowance Calculations Utility Consumption Baselines Accessibility Reviews & Inspections Capital Needs Assessments Energy Audits Accessibility Package Packaged Programs ZEFFERT & ASSOCIATES IS A CONSULTING FIRM specializing in the delivery of asset management and various related services nation-wide in support of the housing industry. Since 1994, Zeffert leverages efficiencies created by existing expertise, information management, and logistical systems to provide high-value services at optimal cost. www.zeffert.com 2321 Weldon Parkway St. Louis, MO 63146 P: 866-760-6000 E: info@zeffert.com